For a business expense to be allowable, it must have been incurred
‘wholly and exclusively’ through the process of either running the business or trying to attract additional business e.g. if your income was £30,000 last year, and you spent £5,000 on allowable expenses, then your business will only be taxed on profits of £25,000.
Expenses are either allowable (tax deductible) or non-allowable (nontax deductible) business expenses e.g. a business may incur valid business-related expenses as part of running the business, but which are specifically not allowable, such as business entertainment etc.
To claim an expense as a business expense, then are a number of criteria that need to be met as follows:
• Only costs that are incurred ‘wholly and exclusively’ during the everyday running of your business are allowable.
• Expenses that have a dual purpose for business and personal use will not be deductible.
• Expenses must typically be paid through the business’ bank account, with any business expenses paid personally, being deductible once the costs are reclaimed and later reimbursed.
• A record should be maintained as much as possible in respect of all business expenses, including VAT receipts, so that you can justify your actions if you’re queried in the future.